This year gold has come up 12 per cent against the yen, 9.5 per cent against the euro and for Russian holders - up 80 per cent. The precious metal has always been an ideal hedge amid currency wars, and investors stocking up on bullion at current depressed prices know what they are doing.
Three 2015 gold scenarios
First, US stock markets crash in anticipation of a rate rise in June. Falling markets will briefly pull the price of bullion down with them. QE4 is launched. Then prices recover sharply by the end of the year and actually exceed all other asset classes in performance. That’s something of a repeat of 2008-9. In addition, QE4 might crash the bond market and send gold prices to the moon.
Second, the global economic contractions becomes so bad by mid-year that the Fed abandons rate rises as impossible. Stock markets correct as the profit outlook is also therefore bleak. But as the threat of higher interest rates to bullion is gone then gold and silver have a positive year alongside bonds which have another surprisingly good year.
Third, Goldman Sachs gets it right and the US economy storms ahead. Interest rates and the dollar go up. US investors dump their remaining gold because buying equities looks more attractive again. Indian and Chinese buyers continue to snap up gold at relatively cheap prices, and it tracks the dollar higher regardless, acting as perfect hedge against the declines in other currencies.
Then the US economy becomes hopelessly uncompetitive due to a higher dollar and multinational profits shrink. The stock market slumps. QE4 is launched. Bonds crash. Gold and silver rocket.
Perfect hedge
Perfect hedge
For all the noise from Wall Street actual stock market gains for 2014 will be modest when adjusted for real inflation levels. Even in US dollar terms – and the dollar has enjoyed a sparkling year – gold will not have lost much, and if like many people around the world you hold other currencies you are laughing.
The author of the Arabian Money article advises to keep calm if you are from the world’s largest economic bloc the eurozone or the next largest European economy Russia, or Japan, the UK, India, Canada, Australia, Brazil, Malaysia, South Africa, Nigeria, Thailand and Indonesia, as gold has worked for you in 2014 and will most probably again in 2015, possibly exceptionally so. So you'd better hedge your positions with a bullion.
